SCOPE AND LIMITATIONS ON THE USE OF CREDIT DERIVATIVES IN SMALL CAPITAL MARKET

Abstract

Despite its widespread use, rating agency ratings, and high turnover, the market for credit derivatives is still considered new and insufficiently researched. In addition, the intensification of the 2008 financial crisis cannot be fully attributed to the use of credit derivatives, although they played a significant role in the spread of the crisis. Although the Capital Market Act provides for financial derivatives, credit derivatives have not yet been used in the capital markets of Bosnia and Herzegovina. In this regard, serious authorities in the field of financial management advocate the use of credit derivatives for risk transferring because it can significantly reduce the number of losses in the event of a credit event. This possibility gained importance after the shock caused by the coronavirus pandemic. In this paper, we examine the hypothesis that there is significant room for innovation in the domestic capital market. We have shown that it is possible and desirable to introduce credit derivatives on the market, and we state the scope and limitations, but we also identify obstacles to the introduction of such innovations